State of Maharashtra v. Reliance Industries Ltd. & Ors.

 State can withdraw tax exemption in public interest, but must provide reasonable transition period to avoid undue hardship.


Background

Challenge to withdrawal/modification of electricity duty exemption granted to captive power producers.

The State granted exemption under s. 5A Bombay Electricity Duty Act, 1958 to encourage captive generation. Notifications (2000–2001) curtailed/withdrew exemption. The High Court struck them down as arbitrary; the State appealed.

Issues Framed

  1. Whether the State is legally empowered to withdraw or modify exemption granted under s. 5A.
  2. Whether such withdrawal violates doctrines of promissory estoppel, legitimate expectation, or Art. 14 Const. of India.

Court’s Reasoning

1. Nature of exemption under s. 5A

  • Rule: Exemption is a concession/privilege, not a vested right.
  • Application:
    • Beneficiaries have only a defeasible right to enjoy exemption during its currency.
  • Holding: State retains power to withdraw/modify exemption under the same statutory provision.

2. Promissory estoppel & legitimate expectation

  • Rule: Applicable against State but yields to overriding public interest.
  • Application:
    • Policy change driven by fiscal considerations and revenue augmentation.
    • Beneficiaries ought to know exemptions may be rescinded.
  • Holding: Doctrines not applicable where withdrawal is in public interest.

3. Article 14 review of fiscal policy

  • Rule: Courts interfere only if policy is manifestly arbitrary or discriminatory.
  • Application:
    • Withdrawal based on budgetary constraints is a valid policy ground.
  • Holding: Notifications not arbitrary or unconstitutional.

4. Requirement of fairness in withdrawal

  • Rule: Even lawful withdrawal must satisfy fairness and reasonableness.
  • Application:
    • Industries had structured affairs based on long-standing exemption.
    • Abrupt withdrawal without notice causes undue hardship.
  • Holding: State must provide reasonable notice period.

Decision 

  • High Court judgment set aside.
  • Power of State to withdraw/modify exemption upheld.
  • Notifications valid but effective only after 1-year transition period from their dates.

Ratio

A statutory tax exemption is a defeasible concession that may be withdrawn in public interest without violating promissory estoppel or Art. 14, but such withdrawal must be implemented with a reasonable transition period to satisfy fairness.

Case Details

Citation: 2026 INSC 296
Decided on: 25 March 2026
Case Title: State of Maharashtra v. Reliance Industries Ltd. & Ors.
Court: Supreme Court of India
Bench: Alok Aradhe, J.; Pamidighantam Sri Narasimha, J.

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